Corporate governance in the public sector (7)


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Corporate governance in the public sector (7)

  1. 1. . . . . Management Centre . . . . .Good corporate governance inthe Public sectorALL CONTENTS COPYRIGHT © 2004-2009 H&H ASSOCIATES 1
  2. 2. . . . . . . . . .ContentsFinancial Management.....................................................................................9 Governance ...............................................................................................9 Corporate governance...............................................................................9 Good Corporate Governance ..................................................................10 Planning and budgeting...........................................................................14Management accountability: revenue forecasting and expense budgeting .15 Understanding revenue requirements for on-going operations and asset expenditures 15 Using performance budgeting to set government program priorities ......31 Approach to resource allocation ..............................................................35 Budgetary control.....................................................................................39 Devolving budgets and delegating financial management responsibilities39 Distinctive features of financial management in PSM .............................40 Ensuring value for money........................................................................40 Policies and regulations that increase government accountability and transparency 44 Developing performance-based indicators to analyze and measure results 48Taxation ..........................................................................................................49 Tax systems.............................................................................................49 Taxes in countries....................................................................................64 Current issues..........................................................................................64 Budgetary process...................................................................................66Tax incidence and efficiency ..........................................................................69 Incidence and partial equilibrium .............................................................69 General equilibrium incidence .................................................................71 Costs of taxation ......................................................................................75ALL CONTENTS COPYRIGHT © 2004-2009 H&H ASSOCIATES 2
  3. 3. . . . Optimal Taxation......................................................................................75 .Strategies to Reduce Systemic Corrupt Practices in Government Operations76 . . Developing managerial accountability plans at each level of government through the introduction of advanced . accountability tools...................................................................................89 . . Identifying techniques (Public Sector Management Action Plan) to mitigate corrupt practices? 90 Policies and regulations that increase government accountability and transparency 106 Developing performance-based indicators to analyze and measure results 110 Improving procedures and quality in daily transactions with customer/beneficiaries 111 Involving citizen groups to help fight corruption.....................................114 .................114Appendix – Definitions & Resources ...........................................................117 Resources..............................................................................................117ALL CONTENTS COPYRIGHT © 2004-2009 H&H ASSOCIATES 3
  4. 4. Financial Management Governance Governance is the activity of governing. It relates to decisions that define expectations, grant power, or verify performance. It consists either of a separate process or of a specific part of management or leadership processes. Sometimes people set up a government to administer these processes and systems. In the case of a business or of a non-profit organisation, governance relates to consistent management, cohesive policies, processes and decision-rights for a given area of responsibility. For example, managing at a corporate level might involve evolving policies on privacy, on internal investment, and on the use of data. In terms of distinguishing the term governance from government - "governance" is what a "government" does. It might be a geo-political government (nation-state), a corporate government (business entity), a socio-political government (tribe, family, etc.), or any number of different kinds of government. But governance is the kinetic exercise of management power and policy, while government is the instrument (usually, collective) that does it. The term government is also used more abstractly as a synonym for governance, as in the Canadian motto, "Peace, Order and Good Government". Corporate governance Corporate governance consists of the set of processes, customs, policies, laws and institutions affecting the way people direct, administer or control a corporation. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the corporate goals. The principal players include the shareholders, management, and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large. The first documented use of the word "corporate governance" is by Richard Eells (1960, pg. 108) to denote "the structure and functioning of the corporate polity". The "corporate government" concept itself is older and was already used in finance textbooks at the beginning of the 20th century (Becht, Bolton, Röell 2004). These origins support a multiple constituency (stakeholder) definition of corporate governance.ALL CONTENTS COPYRIGHT © 2004-2009 H&H ASSOCIATES
  5. 5. Good Corporate Governance By Ian Ball, IFAC Chief Executive On Behalf of René Ricol, IFAC President Presented before the Association of Accountancy Bodies in West Africa -April 26, 2004 Distinguished guests, fellow accountants, and colleagues. It is truly a privilege to participate in your Congress and to speak on this very important topic of good corporate governance. I am making this presentation on behalf of René Ricol, IFAC’s President, who regrets that an unavoidable conflict prevents him from being with you today. During his tenure as IFAC President, Mr. Ricol has worked to raise awareness of the value of strong corporate governance and he applauds your efforts to make this a focus of your Congress. I am particularly pleased to be with you for this Congress, as it is the first of your Congresses since the IFAC Board acknowledged the Association of Accountancy Bodies of West Africa as a regional grouping, so it is a special pleasure to be able to welcome ABWA to membership of the IFAC ”family”. I would also like to acknowledge the contribution that two of the IFAC Board members, Ndung’u Gathinji of Kenya and Ignatius Sehoole of South Africa, have made significant contributions in the process of acheiving this acknowledgement for ABWA. IFAC sees its regional groupings and regional organisations as an increasingly important element of the IFAC structure and would encourage the strengthening and expansion of these networks. As I turn to my theme of corporate governance, I would note that while my presentation today focuses on corporate governance in the private sector, the need for sound governance arrangements in the public sector are also critically important. As the former Vice-President and Controller of the World Bank, Jules Muis, has observed, an economy can be likened to an aeroplane – both wings must be sound for it to fly safely. For an economy to grow and develop, its governance structures in both the public and private sectors must be solid. I should also note that the need for the governance of the public sector to be sound was recognised by the Eastern Southern and Central African Federation of Accountants a number of years ago when they urged the Public Sector Committee of IFAC to produce its document ”insert”. Sound corporate governance is, of course, critical to capital market development in West Africa, in other emerging economies and around the globe. Effective corporate governance can create safeguards against corruption and mismanagement and promote transparency, and therefore efficiency, in economic affairs. It is at the heart of building confidence in financial systems and that is at the heart of sustainable economic growth. At one level it is that simple – if sustainable economic growth is the goal, good corporate governance is essential. As professional accountants, we understand that while corporate governance is a concept that is presently making the headlines, it is also much more than that. Corporate governance is about actions and behaviours -- actions and behaviours that need to be taken by private and public enterprises, that need to be reinforced by governments, and that must be supported by professional accountants and all those involved in the development and disclosure of financial information. Good corporate governance hinges on a number of elements such as principles, values, laws, rules, regulations, and institutions. I will touch on some of this today as I seek, first, to provide you with an understanding of good governance from the perspective of the International Federation of Accountants and, second, describe the role we can all play in enhancing corporate governance practices.ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 10
  6. 6. First, I’d like you to take a look back with me to the not too distant past, to nearly two- and-a-half years ago when the U.S. energy giant Enron collapsed. Back in 2001, many blamed the Enron failure almost exclusively on the auditors. Corporate governance was not yet seen as so central to the corporate failures. Few understood the depth of the problems. In fact, some predicted that Enron was a storm that would soon blow over. Time has shown that rather than being an isolated event, Enron was the leading edge of a storm front. In fact, ”Enron” has become global shorthand for corporate greed and failed corporate governance. WorldCom, Tyco, Adelphia, Ahold, Vivendi and most recently Parmalat have all followed, each new case tending to reinforce public cynicism towards business in general. Reversing this trend, restoring and improving public confidence in capital markets, in financial reporting and in the accounting profession is the end game of the strategy I will present to you today. There are many of you who, like me, recall financial failures in previous decades. Scandals involving companies like BCCI, Baring, Sunbeam and Credit Lyonnaise. What has changed? Well, the world has changed since the 1980s and 1990s. More and more people have a stake in the performance and conduct of public companies, through stocks, mutual funds and pension plans. Investing in public companies has in many countries become an activity open to anyone with a computer and a relatively few dollars. This has greatly increased the political salience of capital market performance. As well, the globalization of business and communications, increasing technology and increasingly complex financial transactions, mean that a business failure anywhere touches people everywhere. A failure in London impacts the markets in Lagos. This is why a recent survey of business leaders by the Economist Intelligence Unit found that the attention being paid to corporate governance is increasing worldwide and will continue to do so into the future. Some of those behind the scandals of the past two years were accountants. However, they were not the only ones to blame. In fact, thousands of accountants like those of you sitting in this room today are dedicated to providing quality work and to putting your integrity ahead of short-term commercial interests. Nonetheless, the scandals created a ripple effect for our profession -- accountants who fail in London negatively affect the trust and reputation of accountants in Lagos, and vice versa. To be sure, some of the criticism concerning auditors and their role in these failures has been fair. Some of it was not. Part of our job, as trained professionals, has been to see what we could learn from the events. I want now to talk about some elements of IFAC’s response to these events, focusing on those related to corporate governance. IFAC took the approach of addressing this challenge on two levels: focusing on improving the role of accountants in the governance and financial reporting chain, and developing a plan of action to improve corporate governance as a whole. We recognized that enhancing public trust through our commitment to the highest standards of quality and integrity required real action as well as the ability to effectively communicate that action to all of our stakeholders, including the public. While these corporate failures have placed the accounting profession under unparalleled scrutiny, they have also provided us with unparalled opportunity to effect reform and change. Obstacles to enhancing professional standards of quality, integrity and independence have melted away. In a sense, Enron and its cousins compelled us to take a hard look at our core values. What we have relearned is that our profession is built on public trust. It’s all we have. But it’s an awful lot. It’s what keeps the markets working. In order for the public to have confidence in the quality and integrity of our work, we need to earn their trust every day. With 158 member organizations in 118 countries, representing 2.5 million accountants worldwide, IFAC is ideally placed to effect change, and we have seized the opportunity. Accountants play a key role in the value creation chain, in which one link is good corporate governance. Our analysis illustrates very clearly the connection between business failure and reporting failure. The two go hand in hand.ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 11
  7. 7. Even before Enron collapsed, IFAC had issued a robust new principles-based standard on independence for public accountants as part of the Code of Ethics for Professional Accountants. This framework is the most rigorous international guidance ever issued, and its principles and guidance are being adopted by a growing number of national accounting and auditing standard-setting bodies. At the same time, we welcome oversight of the profession. For most of our national organizations, this means the acceptance of some external oversight mechanism or process. Internationally, IFAC undertook a wide-ranging consultative process that resulted in a series of reforms, unanimously supported by international regulators and approved by IFAC’s Council last November. This initiative also received the endorsement of the Financial Stability Forum.These reforms, currently being implemented, include the establishment of a Public Interest Oversight Board to oversee IFAC’s standard-setting and compliance regimes, as well as increased transparency and public participation in governance and standard-setting activities. The end result of these reforms is that IFAC has moved from a self-regulatory framework to a mixed or shared regulatory structure. We have also focused on developing a more transparent standard-setting process for the International Auditing and Assurance Standards Board (IAASB) as well as for the Education Committee and the Ethics Committee. The IAASB meetings are open to the public, and its papers are posted on the IFAC website. We have increased technical support to the IAASB in order to channel energies in areas that most seriously touch on the public interest. In the past few months, the IAASB has released two new quality control standards. One establishes a firm’s responsibilities to set up and maintain a system of quality contrl for all audits and assurance engagements. The second establishes standards for the specific responsibilities of firm personnel for an individual audit engagement. Now to the broad scope of corporate governance. As many of you know, IFAC has taken a leadership role in responding to the crisis in corporate governance. We regard this as a long-term challenge, one that will require long-term solutions, not quick fixes. And we are far from alone in addressing these issues. Just last month, the Organization for Economic Cooperation and Development – OECD – approved a revised version of its Principles of Corporate Governance to address issues that have undermined the confidence of investors in company management. The revised principles include new recommendations for good practice in corporate behaviour. IFAC contributed to the process through which the OECD undertook the revision and supports both the principles and the encouragement for international convergence of corporate governance practices that are based on these principles. I would encourage you all to go to the OECD website to view and understand these principles. The issuance of these new principles further reinforces IFAC’s position that to rebuild and maintain public trust in companies and stock markets, action must be taken at all points along the information supply chain. This involves management and boards of directors, auditors, standard setters as well as lawyers, investment bankers, credit rating agencies and the media. At each point, individuals must take responsibility for their actions. Everyone in this room shares this responsibility. We must succeed, because the stakes are too high to do otherwise. All of us must be committed to high ethical standards and be vigilant in discharging the responsibility we have for ensuring public confidence in the markets. This must be our shared vision because, again, the stakes are so high. In 2002, IFAC established an independent, international Task Force that produced a report, Rebuilding Public Confidence in Financial Reporting, released in July of last year. This report provides a number of important recommendations addressing a range of corporate governance issues. The report lists and explains principles of best practices that call for specific action at all points in the information supply chain.ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 12
  8. 8. Specific recommendations include the following: • Effective corporate ethics codes need to be in place and actively monitored; such codes should be supported by training. • Codes of conduct need to be put in place for other participants in the financial reporting process - such as investment analysts and lawyers - and their compliance should be monitored. • Incentives to misstate financial information need to be reduced, and companies must refrain from forecasting profits with an unrealistic level of precision. • Audit effectiveness needs to be raised, primarily through greater attention to audit quality control processes. Complementing this report is a document released just this past February by IFAC’s Professional Accountants in Business Committee, the PAIB Committee. This report, entitled Enterprise Governance: Getting the Balance Right, analyzes a number of prominent recent case studies to develop recommendations covering the range of enterprise governance. For those of you unfamiliar with the term, enterprise governance includes both corporate governance and corporate performance. The committee found that four key elements underpin an organization’s success: culture and tone at the top; the chief executive; the board of directors; and internal controls. The report notes that governance and performance need to be in harmony and performing well in order to enhance the chances of organizational success. Our focus is on good governance, but as the PAIB discovered, good governance on its own cannot make a company successful. Companies need to balance conformance with performance. Bad governance can ruin a company, but cannot, on its own, ensure its success. These reports have not been issued in isolation. Instead, they are one part of a strategy that includes IFAC reviewing and monitoring corporate governance standards worldwide. IFAC member bodies have agreed to encourage key stakeholders in their home countries to adopt the recommendations from these two reports. It is a global campaign that is gaining momentum. In undertaking the Credibility and Enterprise Governance reports, three new realities became apparent. I call them realities because they mark a fundamental shift from the pre-Enron world in which we all worked, and because they are bringing fundamental change in how we will do business for years to come. Some elements were emerging or under development prior to Enron, but the corporate scandals of recent years have given them visibility and significance as never before. The first new reality is that improving standards of corporate governance is not only a national issue that each country must address, but it is also an international issue. At the national level, many countries are taking steps to improve governance through tougher legislation and regulation, new codes of ethics, and the establishment of oversight bodies. Our stakeholders recognize the role that accountants and auditors play in value creation as well as in contributing to good corporate governance. As an example, the EU has already indicated its plans to adopt international accounting standards and international standards on auditing by 2005. This is a very important development, though Europe is not alone in taking this course. Governments and regulators increasingly understand that international standards, already established or being developed by bodies like IFAC, are the soundest method of ensuring the reliable functioning of the global capital markets. To this end, on the international front, IFAC seeks to work closely with organizations like the Financial Stability Forum, which aims to achieve stability in capital markets through dialogue amongst national governments and financial institutions. These activities help toALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 13
  9. 9. achieve IFAC’s goal of convergence to international standards – a goal that is vital to achieving comparability of financial information around the globe and ultimately, financial stability. IFAC also actively supports the International Accounting Standards Board’s program of global International Financial Reporting Standards, and we endorse countries around the world that implement regulations consistent with IOSCO’s Principles of Securities Regulation. The second of the three new realities I referred to is that enhanced corporate governance is a team effort. It takes the committed effort of accountants, executive management, the board of directors, audit committees and regulators. Each of these groups must recognize its unique public interest responsibility. There’s a dichotomy at work here: no one profession or group can ensure an organization’s good corporate governance, but the failure of one group can put good governance at risk – thus compromising the protection offered to stakeholders. Finally, the third, and perhaps most important reality, is that good corporate governance cannot be established if organizations are not committed to high standards of individual and institutional integrity. As we’ve seen over the past two-and-a-half years, failures in integrity were perhaps the lead factor in these corporate scandals. In order to prevent them from occurring in the future, a culture of integrity must take hold. While sanctions are necessary for those who do not comply with legal and regulatory requirements, what is far more effective is building a culture of good governance that prevents those sanctions from ever having to be implemented. In IFAC’s recent Enterprise Governance report, the writers describe the ideal environment as comprising a virtuous circle of integrity and ethics, based on the conscious decision by all parties to take good governance seriously. I meet regularly with the international leaders of accountancy bodies and the leaders of the accounting firms, as well as regulators and standard setters. What I have learned is that we are increasingly viewed as a global profession with the ability to effect change that is in the public interest. This brings with it tremendous opportunity, as well as challenge. We can all take a leadership role in enhancing public trust not only in our profession, but through the whole governance chain. Everyone in this room has an equal role to play; we are all partners. Every day, we must bear in mind we have deliberately set the bar high because we demand no less of ourselves and because the public demands no less of us. I urge you to pursue activities to promote good corporate governance and to continue to explore, at a regional level, the exchange and coordination of ideas. It is through exchanges such as this that the accountancy profession can become the impetus for strengthening corporate governance policies, and in doing so, rebuild trust not only in the profession but in the markets in which we operate. I will end by repeating what I said earlier - at one level is very simple – if sustainable economic growth is the goal, good corporate governance is essential.Planning and budgeting Public Sector Budgeting & Forecasting Approaches to business planning in the Public Sector are different from those in the private sector, even if the idea behind the behind the approach is the same. You need to focus on maximizing funds that are constantly under pressure to deliver value for money and well as ensure that there is tight monitoring on those funds, enabling effective decision making. Effective planning is about establishing the vision, goals, strategies, procedures with performance measures and monitoring for a high performance organisation.ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 14
  10. 10. Management accountability: revenue forecasting and expense budgetingUnderstanding revenue requirements for on-going operations and assetexpendituresALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 15
  26. 26. Using performance budgeting to set government program priorities Performance-Based Budgeting (PBB) This whole framework points us to a newer way of budgeting, the so-called Performance- Based Budgeting. As explained by Carter [5] (as quoted in )[6] “Performance budgets use statements of missions, goals and objectives to explain why the money is being spent. It is a way to allocate resources to achieve specific objectives based on program goals and measured results.” The key to understanding performance-based budgeting lies beneath the word “result”. In this method, the entire planning and budgeting framework is result oriented. There are objectives and activities to achieve these objectives and these form the foundation of the overall evaluation. According to the more comprehensive definition of Segal and Summers [7], performance budgeting comprises three elements: the result (final outcome) the strategy (different ways to achieve the final outcome) activity/outputs (what is actually done to achieve the final outcome)ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 31
  27. 27. Segal and Summers point out that within this framework, a connection exists between the rationales for specific activities and the end results and the result is not excluded, while individual activities or outputs are. With this information, it is possible to understand which activities are cost-effective in terms of achieving the desired result. As can be seen from some of the definitions used here, Performance-Based Budgeting is a way to allocate resources for achieving certain objectives [8], Harrison [9] elabourates: “PBB sets a goal, or a set of goals, to which monies are “connected” (i.e. allocated). From these goals, specific objectives are delineated and funds are then subdivided among them.” Achieving PBB For this type of advanced budgeting, which requires the definition of Key Performance Indicators (KPIs) at the outset, linking these performance indicators to resources becomes the vital part of the entire setup. This is similar to the Corporate Performance Management (CPM) framework, which is “where strategy and planning meet execution and measurement”, according to John Hagerty from AMR Research. This is a sort of a Balanced Scorecard approach in which KPIs are defined and linkages are built between causes and effects in a tree-model on top of a budgeting system which should be integrated with the transactional system, in which financial, procurement, sales and similar types of .transactions are tracked. Moreover, linking resources with results provides information on how much it costs to provide a given level of outcome. Many public bodies fail to figure out how much it costs to deliver an output, primarily due to problems with indirect cost allocation. This puts the Activity-Based Costing framework into the picture.. Both the concepts of scorecards, as first introduced by Kaplan and Norton, and activity- based costing are today well-known concepts in the private sector, but much less so for the public-sector bodies…until the advent of Performance-Based Budgeting! Another conceptual framework that has gained ground is the relatively recently introduced CPM, again more popular in the private sector. The point is that the CPM framework has not much touched on the topic of Performance-Based Budgeting, although the similarities in policies offered by these frameworks are worth a deeper look. The technical foundation that the CPM framework puts on the table may well be a perfect means to rationalize the somewhat tougher budgeting approach, not only for the public sector but also for commercial companies. The way to CPM and PBB Leading companies are integrating various business intelligence applications and processes in order to achieve Corporate Performance Management. The first step is for senior management to formulate the organization’s strategy and to articulate specific strategic objectives supported by key financial and non-financial metrics. These metrics and targets feed the next step in the process, Planning and Budgeting, and are eventually communicated to the front-line employees that will carry out the day-to-day activities. Targets and thresholds are loaded from the planning systems into a Business Activity Monitoring engine that will automatically notify responsible persons of potential problems in real time. The status of the business is reviewed regularly and re-forecast and, if necessary, budget changes are made. If the business performance is significantly off plan, executives may need to re-evaluate the strategy as some of the originalALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 32
  28. 28. assumptions may have changed. Optionally, activity-based costing efforts can enhance the strategic planning process – deciding to outsource key activities, for example. ABC can also facilitate improved budgeting and controls through Activity-Based Budgeting which helps coordinate operational and financial planning. The ability to establish CPM to enhance control on budget depends first upon achieving a better understanding of the business through unified, consistent data to provide the basis for a 360-degree view of the organization. The unified data model allows you to establish a single repository of information where users can quickly access consistent information related to both financial and management reporting, easily move between reporting the past and projecting the future, and drill to detailed information. By then, you are ready to plug in - on the unified data - the applications that support consolidations, reporting, analysis, budgeting, planning, forecasting, activity-based costing, and profitability measurement. The applications are then integrated with the single repository of information and are delivered with a set of tools that allow users to follow the assessment path from strategy, to plans and budgets and to the supporting transactional data. CPM and the adoption of more public-sector oriented PBB are not easy to tackle, but in the ever-changing business and political climate they are definitely worth a closer look.GPRA & Performance-Based Budgeting The Government Performance and Results Act of 1993 (GPRA) has always envisioned the complete integration of the Annual Performance Plan with the Budget – what is known as “Performance-Based Budgeting” or simply "Performance Budgeting." This integration is perhaps the single most powerful tool for implementing comprehensive Performance Management within government agencies. In fact, it was a particular example of a sophisticated and very effective use of this form of budgeting that directly inspired the origination of GPRA. In his June 2001 testimony before the House Subcommittee on Government Efficiency, John Mercer described Performance Budgeting and its relationship to GPRA. He explained some of its uses in resources allocation, program management, and accountability. Much of his understanding of the value of this type of budgeting was based on his experience in the model performance budgeting system that inspired GPRA.CASCADE™ Performance Based Budgeting Software The newly available CASCADE™ Performance Based Budgeting Software is a uniquely effective solution for addressing the strategic planning and performance budgeting needs of Federal departments and other government agencies. CASCADE™ presents a trulyALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 33
  29. 29. innovative approach to instilling operational planning transparency and accountability in organizations of from 50 to over 10,000 managers. Designed by John Mercer, the President of Strategisys LLC of Alexandria, VA. He is often called “the Father of GPRA” (Government Performance and Results Act) and is internationally recognized as a “foremost expert in performance-based budgeting.” Developed by Integrated Digital Systems of Manassas, VA. As a manufacturer of software solutions for government, IDS is a Microsoft Gold Certified Partner and a Veteran-Owned Small Business with a GSA Federal Supply Schedule contract. CASCADE™ begins at the beginning – the place where your organization is first developing a new long-term strategic plan. Through a cascading hierarchy of goals and strategies that directly involves every manager at every level; day-to-day activities are clearly linked to each strategic goal of your organization. Detailed guidance and examples are provided every step of the way, ensuring that managers develop meaningful and measurable goals, and that they define specific strategies for accomplishing them. CASCADE™ applies this same approach to developing your organization’s annual performance budget. Each manager’s own budget includes measurable results, with relevant unit costs, and is explicitly linked to organizational goals. The Goal Chart shows every manager’s goals, as they are developed, linked to higher-level goals. This provides an easy means to clarify both organizational and individual accountability for program performance. CASCADE™ Performance Based Budgeting Software is the first and only integrated strategic planning and performance budgeting software solution that has been designed specifically to meet the unique needs of government agencies, with in-depth “how-to” guidance. It is not a product that was originally designed for commercial businesses. For more information contact John Mercer of Strategisys LLC at 703-924-2820. Volatile implementation Incomplete devolution of powers marked by frequent reversals (from federal government to state and from state to local) Important decisions still taken at the centre and then formally endorsed locally Inequitable distribution of resources between centre, states, and localities Strong grip on power and resources from the centre Lack of financial autonomy of decentralized structures Frequent changes of policies: “policy has changed even before the public became acquainted with the policy and its accompanying legislation” High turnover of policymakers and decision makers Multiplicity of experiments of local government forms without prior thorough evaluation of past experiences Lack of accountability at all levelsALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 34
  30. 30. Lack of stakeholder participation in policymaking Absence of democratic life (free and fair elections); lack of democratic processes that make decision makers answerable to the public Decision makers are chosen by appointment. They are accountable to the president or to the governors, not to the people Lack of accountability is also a cause for corruption and diversion of whatever resources are available. The underlying causes of this state of affairs were mainly identified as lack of political will, reluctance or even active resistance to sharing power and resources by the federal administration, and a divergence of visions and expectations between government and the people about the ultimate goals of decentralization. Table 2. Views regarding the causes of policy volatility and lack of accountability Lack of political will for an effective share of power and resources The system is ridden with nepotism and favouritism (clientelism) Leadership does not trust people’s ability to govern them and administer their affairs Lack of democracy Important constraints to regionalization included resistance from central administrations and staff (alliance) and limited financial resources transfers People equated decentralization with “returning the land to its owners” Weak administrative capacities of the states and local governments and high dependency on federal resources. Weak institutional capacities (staff, planning, and policymaking) and states’ inability to develop their sources of revenue feed off each other Financial autonomy is weak; resources hardly pay for staff salaries, no budget for development services. Poor infrastructure in support of policy implementation Executive officers during the colonial period were well trained. The appointment of incompetent officials has caused people to withdraw respect from them, which has reduced their authority Lack of resources (human, technical, financial) hinders proper monitoring of compliance and diligent implementation of policiesApproach to resource allocation Resource allocation decisions involve choices among competing alternatives as to the optimum use of resources in terms of satisfying organisational objectives. Resource allocation is especially important in public services where the objectives are to maintain aggregate fiscal discipline (i.e. to prevent overspending), to allocate resources in accordance with government priorities (allocative efficiency), and to promote efficiency inALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 35
  31. 31. the use of budgetary resources (technical efficiency: OECD, 1999). The notion of resource allocations in order to achieve goals is particularly problematic in public services because goals are more ambiguous than the private sector’s almost single-minded profit, cash flow (or shareholder value) motives, and outcomes, let alone outputs, may be difficult to assess. Resource allocation decisions are influenced significantly by uncertainties of demand and external factors (including treasury budget allocations to public services) over which service deliverers may have little influence. Four approaches to public sector resource allocations can be identified from the literature: rational methods, non-rational methods, expectations, and heuristics. Each is described in turn. Rational methods Rational methods of making resource allocation decisions predominate in private sector studies where economic methods can identify cost-benefit optimality. However they also exist in public services, from budgets (Covaleski & Dirsmith, 1986) and simple cost-benefit analysis (Gordon, 1989) to formulae for resource allocations in hospitals (Nahapiet, 1988), planning, programming and budgeting systems in the US military (Chwastiak, 2001), through contractualisation and competitive tendering in health services (Kurunmäki, 1999). Data envelopment analysis (DEA) and stochastic frontier analysis (SFA) have been used in public sector studies e.g. in fire services (Athanassopolous, 1998) and policing (Thanassoulis, 1995). Many rational methods emphasise technical efficiency. DEA and SFA for example focus on the efficient frontier. However, resource allocation decisions can be problematic in terms of measurable benefits. Mehrez & Gafni (1990) compared the risk of death from a catastrophic event with risk of death from chronic events like disease or traffic accidents. They defined the decision problem as how to best allocate resources in order to lower the risk of death to individuals from exposure to different types of events. From a societal perspective this involves concentrating on both efficiency (the use of limited resources in a manner that will provide maximum output) and equity dimensions. However, society treats the two events differently, devoting more attention and perhaps more resources to possible catastrophic events, because the larger the group of people who die, the worse the accident is perceived to be. In health service delivery, benefits have been assessed in terms of quality-adjusted life years (QALYs)or health-related quality of life (HRQoL: Dolan, 2000) which take into account the effect of medical procedures on both the measurable quantity and quality of life that results from a medical procedure. However, concerns have been raised about the use of these measures in resource allocation decisions (e.g. Gerard & Mooney, 2006). Multi-criteria approaches to resource allocation problems that apply weights to each criterion are increasingly commonplace and become institutionalised as algorithms. Frameworks have been developed for hospitals taking into account complexity, uncertainty, variability and limited resources (e.g. Harper, 2002) although the resulting models have been used as planning tools rather than for decision making. Studies of resource allocations in policing have been concerned with the use of socio-economic and demographic factors to allocate resources across different geographic areas (Ashby & Longley, 2005). Non-rational approachesALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 36
  32. 32. Non-rational approaches to decision making are different to the traditional paradigm of rationality, but non-rational approaches are not irrational approaches. They merely reject – or at least modify - the positivist, goal-oriented, cause-effect logic implied by the economic roots of rationality. Non-rational approaches are evident in different styles of managerial decision making over resource allocations. The “search and satisficing” approach provides “good enough” decisions with reasonable costs of computation (Simon, 1979). “Muddling through” is a process of making successive limited comparisons rather than a more comprehensive method (Lindblom, 1959). The “garbage can” model of decision-making is the confluence of the mix of choices available at any one time, the mix of problems that have access to the organization, the mix of solutions looking for problems, and the outside demands on the decision makers (Cohen et al., 1972). Non-rational approaches may also be political choices. Resource allocation in the public sector has been explained as a largely political process between “advocates of the cause” (the programme champions) and “guardians of the treasury” (Wildavsky, 1975) and the use of budgets has been described as a ceremonial device by which governments exercise authority (Boland & Pondy, 1983). Collier (2006) for example revealed the political aspects of calculating the cost of police investigations in the UK which resulted in resource allocations which had unintended consequences. Cultural norms and values can play a role in resource allocation decisions. Birnberg et al. (1983) contrasted the highly analysable and often measurable and verifiable data in private sector firms with public sector resource allocation decisions where there is both low analysability and low measurability and verifiability of data. While Birnberg et al. argued that this could lead to strategies including biasing, filtering and gaming, it was also recognised that values play an important role in resource allocation decisions in the public sector. Expectations analysis Norms and values may not be shared equally and different perceptions exist between service providers, recipients and government about objectives and processes for achieving those objectives, however those objectives may be defined. Machin (1979: 4) used ‘expectations analysis’ to focus on the existence and interpretation of expectations in an organizational setting. Resources are never available to meet the expectations held of managers, who have to decide which they will attempt to satisfy: “The process of choosing is complex because there are many, frequently conflicting, criteria which may be used to assess the relative importance, relevance, usefulness, or difficulty of an expectation, or the differing degrees of personal satisfaction which would be derived from successfully meeting different expectations”. Managers therefore make decisions based on their judgements about what is expected of them, and their intrinsic motivation to satisfy what may be competing expectations. For Machin (1979: 5) ‘expectation’ was seen as the basic unit of information which enabled a system to operate effectively at the whole organization level as well as at the level of individual managers: “The survival and development of an organization depends on its ability to anticipate, and/or adapt to, changes in the content and pattern of expectations held by the substantive environment (or stakeholders) and changes in the relative importance of different expectations and expectation-holders”. This paper proposes a link between non-rational approaches and expectations analysis. Expectations may be a reflection of, and reflect on, norms and values as well as political factors. They may also be informed by, and in turn inform, whatever rational tools are available. Satisficing, muddling through, or garbage can approaches may therefore beALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 37
  33. 33. incorporated in how managers are influenced by competing expectations and the values and norms held by public service deliverers. Expectations may therefore be a useful lens through which to see the coming together of non-rational approaches and how they may fit with rational approaches. Heuristics Using the distinction between judgements which are beliefs about outcomes, and values, which are preferences between outcomes (Thompson, 1967), heuristics based on values have been argued to be the main method by which public servants make resource allocation decisions (Fisher, 1998). These heuristics are “mental rules of thumb, or tricks of the trade, which people learn from various sources, which function by reducing the complexity of the decision to be made ... Heuristics function as part of a person’s way of looking at the world. They are a set of values, which are used to edit competing demands upon attention rather than tools for fine forensic dissection of policy dilemmas” (Fisher, 1998: 26). Research by Fisher (1998) identified six different heuristics involved in resource allocation decisions: deservingness, individual need, fairness, utility, ecology, and personal gain. Deservingness is a moral judgment about whether individuals or groups deserve (or do not deserve) resources. Individual needs are a result of professional judgements. Fairness is concerned with equal access to services, either through queuing or by some standardised rules for the rationing of resources (e.g. a hospital triage system). Utility is concerned with output maximisation and the common good rather than individual need. Ecology considers the competing demands of interest groups and the degree to which those needs are met rather than with any objective. Personal gain is seen in terms of power, job satisfaction, etc. Combined approaches This review of the literature on public sector resource allocation decisions suggests four ways in which such decisions can be made. Based on rational techniques; using non- rational approaches including satisficing (Simon, 1979), muddling through (Lindblom, 1959), and garbage can decision making (Cohen et al., 1972); based on expectations (Machin, 1979); or based on heuristic devices (Fisher, 1998). We have suggested a combination of non-rational approaches with expectations analysis because satisficing, muddling through, or garbage can approaches may be incorporated in how managers are influenced by competing expectations. These approaches are not mutually exclusive and combinations can occur. One method that has elements of both rationality and heuristics is programme budgeting and marginal analysis (PBMA, Mitton & Donaldson, 2004; Mitton et al., 2003), a process that has been used by health economists opposed to measurements like QALYs. The PBMA technique provides information to support priority setting and resource allocation decisions at the margins of resource allocations by facilitating health professionals making informed judgements about opportunity costs, i.e. the alternative use of resources. We suggest that other combinations of approaches (rational, non-rational, expectations, and heuristics) are also possible. Given these different approaches to resource allocation decisions at the micro or operational level in public sector settings, we sought to understand how managers in public service organisations faced with finite resources and uncertain demand actually make resource allocation decisions and which of the approaches (or combinations of approaches) described above were used.ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 38
  34. 34. The setting for the research was a police force in which resource allocation decisions for the investigation of serious and organised crime need to be made.Budgetary control Budgeting is used by businesses as a method of financial planning for the future. Budgets are prepared for main areas of the business – purchases, sales, production, labour, debtors, creditors, cash – and provide detailed plans of the business for the next three, six or twelve months. The difference between what is budgeted to happen and what actually happens is termed a variance. A favourable variance is one that enables a business to increase its profits - for example if sales revenue is higher than budgeted. An adverse variance will reduce profits e.g. if costs are higher than budgeted. By spotting adverse variances managers are able to take control actions - e.g. by cutting out waste to reduce costs, or increasing advertising/promotion when sales are less than expected. Control is the process through which managers are able to keep their business on track. Managers create various financial and budgetary planning tools, which they then monitor at regular intervals. When variances are spotted appropriate management actions are required to put the business back on plan. Read more: 120.php#ixzz13NvSbuEiDevolving budgets and delegating financial management responsibilities Advantages Making local authorities responsible for the cost could make them more frugal They are not thwarted by political whim They are closer to issues and can direct the use of the money better May encourage competition Disadvantages More pots of money to track so admin costs are more Could drive down standards Salford City Council is committed to involving local people in decisions about the city. One example of this is the devolved budgets which are allocated to local communities. Every year, approximately £3.00 per person is allocated to each community committee to make decisions on how the budget should be spent. Each community committee elects a sub group from among its members. They assess applications and make recommendations about how the funding should be spent. Budget sub groups include local residents and local councillors. They discuss ways in which the funding could best be used to deliverALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 39
  35. 35. priorities in the community action plans. Recommendations are then taken to community committee for approval or further discussion.Distinctive features of financial management in PSMEnsuring value for money Introduction 1. Value for Money (VfM) is the term used to assess whether or not an organisation has obtained the maximum benefit from the goods and services it acquires and/ or provides, within the resources available to it. It not only measures the cost of goods and services, but also takes account of the mix of quality, cost, resource use, fitness for purpose, timeliness and convenience to judge whether or not, when taken together, they constitute good value. Achieving VfM may be described in terms of the three Es - economy, efficiency and effectiveness: 2. For VfM to be achieved, the College needs to be as effective as it can in its use of public and other money. Policy 3. Imperial College is committed to delivering value for money as an integral part of its corporate and academic strategy. While it has a specific responsibility to achieve VfM from its use of public funds, this principle extends to all sources of funding. Similarly, the responsibility for pursuing VfM lies with all staff, and not just those with financial duties. 4. To meet its commitment to achieving VfM the College has set itself the following aims: a. To integrate VfM principles within the Colleges existing management, planning, review and decision-making processes, particularly in regard to projects or activities with significant financial implications. b. To adopt recognised good practice where appropriate.ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 40
  36. 36. c. To undertake or commission VfM studies into areas of activity identified as worthy of review. d. To benchmark the Colleges activities against other similar activities and organisations where this is considered useful. e. To respond to opportunities to enhance the economy, efficiency and effectiveness of the Colleges activities. f. To demonstrate actively to both internal and external observers that the achievement of VfM is sought in all activities undertaken. g. To ensure that all staff recognise their continuing obligation to seek VfM as part of their routine activities. Roles and Responsibilities 5. The Council. Under the Financial Memorandum between the Higher Education Funding Council for England (HEFCE) and the College, the Council, which is "the governing and executive body of the College" (1) holds overall responsibility for obtaining VfM. This responsibility is confirmed annually through the members responsibility statement in the Colleges annual financial statements. In practice, however, responsibility for obtaining VfM is largely (and properly) delegated to the Rector and the Management Board. 6. The Audit Committee. The Audit Committee has particular defined duties with regard to VfM. The HEFCE Audit Code of Practice requires the Committee to state formally in its annual report to the Council whether or not it is satisfied with the arrangements in place within the College to promote VfM. In order for the Audit Committee to give this assurance to the Council, each year the Management Board will provide it with a formal report describing how the VfM Policy has been implemented. This Report, and the Internal Audit annual Report, should be made available in time to inform the preparation of the Audit Committees annual Report, and to inform the Councils approval of the annual financial statements which contain the members responsibility statement. 7. The Rector. The Council has delegated responsibility for obtaining VfM to the Rector, whose role is to:ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 41
  37. 37. a. Implement the VfM Policy. b. Ensure that VfM is embedded within the every day management of the College. c. Report annually to the Audit Committee on the implementation of the VfM Policy during the year. 8. Management Board. The Management Board supports the Rector in implementing the VfM Policy. The Management Board (together with the Clerk of the Council and the Secretary of the Audit Committee) also have a responsibility to keep the Council and Audit Committee advised of VfM issues (for example, the publication of relevant advice or reports). To this end the Management Board will institute and regularly review suitable procedures to meet the objectives and reporting requirements of the Policy. 9. Value for Money Steering Group. The Value for Money Steering Group advises the Management Board on the Colleges VfM statements, and submits an annual report to the Management Board and to the Colleges Audit Committee. To this end the VfM Steering Group will institute and review suitable procedures to meet the objectives and reporting requirements of the Policy. Implementation. 10. In order to confirm that satisfactory arrangements are in place to promote economy, efficiency and effectivenesss across the College, the VfM Steering Group will consider the evidence provided by a wide range of existing activities which form part of the Colleges routine management practices and which can provide a broad appreciation of the Colleges effectiveness. These activities are likely to include the strategic planning, financial strategy and budget setting processes, key performance indicator (KPI) systems, costing and pricing policies (TRAC and full economic costing), procurement activity, capital projects and course costing and portfolio reviews. Annual Review of Effectiveness 11. The Council, advised by the Audit Committee, must be satisfied that the College has fulfilled its obligation to achieve VfM from its use of public funds so that the appropriate statement can be made in the Colleges Financial Statements each year. In order to meet this deadline, the VfM Steering Group will schedule its review of VfM in good time to provide its annual report to the Management Board during the autumn term. The SteeringALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 42
  38. 38. Groups Report will then be passed to the Audit Committee so that a statement on VfM can be included in the Committees Annual Report to the Council. VFM Studies 12. In addition to the consideration of evidence provided by existing activities, the Steering Group may also commission separate VfM studies to assess whether the objectives of a particular programme, project or activity could be carried out in a more economic, efficient or effective manner. Priority will be given to areas of significant expenditure which cut across the responsibilities of Faculties, Divisions and Departments. 13. Conducting a VfM study does n ot, in itself, demonstrate VfM; this will be dependent on the results of the study and on any action taken in response to its findings. A VfM study will normally result in an action plan, agreed with the management of the area being reviewed, including recommendations on how greater VfM could be achieved, an assessment of the risks involved in not taking action, a date by which agreed actions are to be implemented, and the name of the officer responsible for implementation. 14. VfM studies will normally be conducted by the Colleges internal auditors. However, an important principle underlying the Steering Groups work is that any stand alone VfM studies commissioned by the Group should themselves add value to the Colleges operations. Such reviews will therefore only be instigated when there is good reason to believe that any savings and / or additional income arising as a result of the review will be greater than the cost of undertaking the review in the first place. VFM Studies by HEFCE and the National Audit Office 15. The VfM Steering Group will also consider the results of VfM studies conducted by HEFCE and/ or the National Audit Office (NAO) and monitor any follow up action required. HEFCE carries out sector-wide VfM studies. The NAO also investigates subjects relating to higher education. The Steering Group will receive such reports, in addition to the Faculty, Department or Division concerned, and will approve the Colleges response to them, if appropriate. It will also seek to benchmark the Colleges performance against these reports, where necessary. ProcurementALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 43
  39. 39. 16. A major element of the Colleges commitment to achieving VfM is the drive to obtain goods and services that provide the best quality at the best price. This is primarily the responsibility of the Colleges Purchasing Department, whose Mission is "to fully support the College mission and corporate strategies by delivering continuous improvement in value for money, based on whole life cost and quality, and to enhance the competitiveness of all our key suppliers through the development of world class professional procurement systems and practices". Dissemination of Good Practice 17. Faculties, Departments and Divisions may not always be aware of opportunities to achieve greater VfM or of the full extent of the potential benefits. The Steering Group will take the lead in promoting the sharing of good practice throughout the College, where this has implications for VfM. To this end, the Central Secretariat will maintain a Value for Money site on the Colleges web site, which will include a copy of this Policy, copies of VfM strategy, copies of the annual reports and any other published VfM reports or guidance. Policies and regulations that increase government accountability andtransparency Organisations Face Multiple FCPA Challenges The U.S. Foreign Corrupt Practices Act of 1977 prohibits U.S. companies, their subsidiaries, as well as, their officers, directors, employees and agents from making corrupt payments or favourable treatment to “foreign officials” for the purpose of obtaining or keeping business. The U.S. Securities and Exchange Commission and U.S. Dept of Justice are working together on FCPA related investigations and have increased their efforts on aggressive prosecutions. FCPA presents many challenges Global corporations nearly always start addressing FCPA by creating corporate policy. However, having an anti-corruption and anti-bribery corporate policy does not guarantee an organisation is not at risk of non- compliance with the FCPA regulation. Due to some of the factors discussed below, the FCPA presents many challenges for organisations to ensure they are compliant. WIDESPREAD CORRUPTION VARIES BY COUNTRY A large number of countries and companies have been identified with widespread corruption. Doing business in these countries can increase the likelihood and risk of FCPA violations. Watch groups such as Transparency International which is a global coalition originated to fight corruption, tracks and ranks countries and companies known as corrupt. Transparency International is established in over 90 countries, tracking and reporting on corruption and policies. They provide an annual ranking of 180 countries with their perceived levels of corruption, as well as their annual Bribe Payers Index.ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 44
  40. 40. DIFFICULT TO CONTROL REMOTE OFFICES, EMPLOYEES AND AGENTS Many organisations have different policies, procedures and levels of automated systems in place in their remote offices. Many procedures are manual, which adds to the complexity of monitoring and enforcing policies of remote employees and agents. Segregation of Duties (SoD) best practices are often impossible to achieve due to the office location, number of limited employees and the size of the operation. Organisations that do not have the luxury of having different people performing key financial transactional processing and approvals, increase their risk significantly for errors, fraud or impropriate activities. DIFFICULT TO KNOW WHO YOU ARE DOING BUSINESS WITH The FCPA specifies guidelines when working with a foreign government official or foreign representative. Sometimes, it is very difficult to know if the person with whom you are doing business has an affiliation with a political party or government agency. DIFFICULT AND EXPENSIVE TO AUDIT REMOTE OFFICES OR OPERATIONS Remote offices with a lot of manual procedures also provide challenges for internal audit teams. The costs per control test and for internal audits are generally significantly higher for remote and satellite offices. Unfortunately, at the same time the risks for a FCPA violation to occur are significantly increased. SECTION 2: SOLUTION Creating a Sustainable FCPA Compliance Program HOW CA AND GREENLIGHT TECHNOLOGIES HELP ORGANISATIONS CREATE A SUSTAINABLE FCPA PROGRAM Creating a sustainable FCPA program requires a focused effort including people, processes and technology. CA works with several risk and compliance consulting companies that have subject matter expertise to address FCPA programs. CA and Greenlight Technologies have partnered together to help organisations build and maintain a sustainable FCPA compliance program by leveraging technology to facilitate, manage, monitor, and react to FCPA related activities across an organisation.ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 45
  41. 41. CA GRC Manager includes a centralized compliance management system which integrates functional compliance information such as processes, policies, risks and controls. Storing and linking all activities within a central repository provides greater visibility of risks across all of the organisation, and eliminates the problem of redundant information stored in corporate silos. This repository provides the foundation for organisations to continuously optimize processes for identifying risks and controls MANAGE FCPA POLICIES WITH ELECTRONIC ATTESTATIONS AND AUTOMATED CONTROLS CA GRC Manager lifecycle policy management functionality ensures compliance with policies by providing role- based dashboards that enable real-time monitoring on how the organisation is performing with regards to those policies, and providing decision support tools for the monitoring and management of the resources utilized within compliance programs. Policy attestation campaigns provide electronic tracking and notifications to employees, vendors and customers of policy requirements based on roles. MANAGE THE RISKS ASSOCIATED WITH NON-COMPLIANCE CA GRC Manager provides a unified view of all your enterprise risks, providing insight into the state of risk throughout your organisation, helping to ensure immediate identification and execution of risk mitigation strategies. CA GRC Manager includes performance dashboards that allow executives to make fact- based decisions with respect to strategic risk and compliance initiatives. Integrated program management capabilities help ensures that optimal remediation plans are produced, communication barriers are eliminated and compliance projects are executed effectively. AUTOMATED DETECTIVE AND PREVENTATIVE FINANCIAL CONTINIOUS CONTROLS MONITORING Greenlight’s Tracking Risk and Compliance (TRAC) financial continuous control monitoring technology provides the most comprehensive platform for continuously monitoring of transaction controls over heterogeneous system environments. Continuous database scanning provides up-to-date financial and operational risk profiles which can check 100% of the financial records. The Greenlight Control Library provides unprecedented pre-defined controls for the major ERP systems, plus other legacy applications for true cross-platform GRC performance. Greenlight’s TRAC solution provides an immediate ROI by reducing the costs of control monitoring and testing. This is accomplished with over 1,500 predefined Access Control, Process Control and Segregation of Duty rules, as well as, Access Provisioning for SAP, Peoplesoft, Oracle Financials, and JD Edwards. These rules will help reduce the cost for FCPA, SOX and other governance best practices relating to financial access and transaction controls. TRAC has an Adaptor Studio module, which allows customers to connect and extend the TRAC Continuous Control Monitoring technology to any custom or 3rd party application. This capability adds intelligence to operational data stores. The robust underlying business engine provides business analysts the ability to create and maintain sophisticated rules for analysis. These rules can check and compare transactions or processes, which include multiple transactions to identify fraud, errors, suspicious “red-flags” activities and suspicious anomalies. For example, Greenlight rules can verify the proper inventory items and quantities were shipped and/or received compared to the invoice details; transactions can be flagged where the same employee created a vendor record, purchase order and/or payment. Duplicate transactions and sales expenses outside of the corporate policy can be flagged. The Greenlight test results from these rules include relevant information and links back to the specific transaction detail to enable optimized investigation and remediation processing. GREENLIGHT TECHNOLOGY TRAC IS CA SMART CERTIFIEDALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 46
  42. 42. The integration of Greenlight Technologies’ TRAC financial continuous control monitoring technology with the CA GRC Manager is CA Smart Certified. Summarized test results and metrics from Greenlight’s financial continuous control monitoring are mapped to the CA GRC Manager Controls and Control Objectives. The GRC Manager imports the operational test results to drive role-based dashboards that allow executives to make better decisions based on more timely information. The GRC Manager dashboards highlight possible violations including identifying which specific policy, control or regulations are affected, and spawning the appropriate workflows and remediation tasks to mitigate these violations. This closed loop system helps organisations to increase their compliance effectiveness and reduce audit and control testing costs. This integration brings together CA’s market leading governance, risk and compliance management platform and Greenlight’s cross-platform deep inspection capabilities to deliver a solution that not only addresses FCPA, but provides a comprehensive and automated system to tackle many compliance initiatives. INTEGRATED FCPA SOLUTION LEVERAGES INTEGRATION TO AUTOMATE CONTROL TESTING AND REDUCES FCPA RISKS AND COSTS Integration between Greenlight TRAC and the CA GRC Manager provides a single repository that can encompass IT, security and privacy controls, along with business, environmental, engineering and financial controls. The GRC Manager is optimized for managing controls, including the control effectiveness and control testing. Controls are mapped to business processes, assets, corporate policies, regulations and enterprise risks. SECTION 3: BENEFITS A Sustainable FCPA Compliance Program reduces Risks and Costs The U.S. Security and Exchange Commission and U.S. Department of Justice fines have ranged from a couple of million dollars, to hundreds of millions, with the largest combined fines for one organisation reaching $1.6 billion US dollars. A sustainable FCPA Compliance Program, with detective and preventative controls will help demonstrate to the U.S. SEC and DOJ, a good faith and best-practice effort in adhering to FCPA regulations. Why risk millions of dollars? A solution is available today to help you address violations, avoiding fines and damage to the corporate reputation and good will. Leveraging the CA GRC Manager and Greenlight Technologies financial continuous control monitoring system, TRAC, will help streamline and optimize the management of the policies and controls to mitigate FCPA related activities and the associated costs. SECTION 4: THE CA ADVANTAGE CA is the world’s largest independent software manufacturer and has a heritage of providing best of breed, enterprise class software solutions. CA has been helping thousands of companies manage their IT and security infrastructure for over three decades. CA also provides comprehensive and proven solutions to unify and improve the management of enterprise risk management and compliance programs. CA GRC Manager delivers a unified, enterprise-wide view of risks and controls. It helps to ensure that exposures are identified so that you can make informed decisions about risks, costs, remediation, benefits and action plans. And, it can help you streamline your risk and compliance activities by automating processes and removing redundancy. SECTION 5: NEXT STEPS Please visit, and for more information on the CA GRC Manager compliance solution and the Greenlight Technologies’ Tracking Risk and Compliance (TRAC), financial continuous control monitoring solution. To learn more, and see how CA software solutions enable other organisations to unify and simplify IT management for better business results, visit ca.comALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 47
  43. 43. Developing performance-based indicators to analyze and measure results The Government Performance and Results Act of 1993 (GPRA) While the origins and implementation of the Clinton administrations National Performance Review (NPR) were located squarely in the political environment of the White House and enunciated via executive orders and presidential pleas, the life story of GPRA was much different. The bill that emerged from the Congress and was signed by President Clinton in August 1993 had its origins in legislation introduced by Republican Senator William Roth in 1990. That legislation was referred to the Senate Committee on Governmental Affairs, which had hearings over a two-year period, modifying the original Roth legislation. The House version of the legislation was not introduced until February 1993, after the 1992 presidential election. With the blessing of the Democratic White House, the legislation sailed through with overwhelming bipartisan support.(1) While the support for the legislation was broad, there was very little real debate over its provisions. GPRA was framed in very general and often abstract terms; neither authorizing nor appropriations committees focused on the consequences of the process for particular policies or programs. President Clintons remarks upon signing the legislation on August 3, 1993 emphasized the importance of restoring the confidence of the American people in the federal government. He commented: "The law simply requires that we chart a course for every endeavour that we take the peoples money for, see how well we are progressing, tell the public how we are doing, stop the things that dont work, and never stop improving the things that we think are worth investing in." Enveloped in classic good government rhetoric, the legislation had support from almost all quarters. It was difficult to be against a bill that sought to improve the efficiency and effectiveness of federal programs by establishing a system to set goals for program performance and to measure program results. The act required agencies to focus on program results, service quality, and customer satisfaction by requiring strategic planning and performance measurement. The legislation had several purposes: * To improve the confidence of the people in the government by holding agencies accountable for achieving program results; * To stimulate reform with a series of pilot projects that could be used as examples for others; * To promote a focus on results, service quality, and public satisfaction; * To help managers improve service delivery by requiring them to plan for meeting program objectives and providing them with information about program results; * To improve congressional decision making by providing information on achievementsALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 48
  44. 44. TaxationTax systems To tax (from the Latin taxo; "I estimate") is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities. Taxes consist of direct tax or indirect tax, and may be paid in money or as its labour equivalent (often but not always unpaid labour). A tax may be defined as a "pecuniary burden laid upon individuals or property owners to support the government […] a payment exacted by legislative authority."[1] A tax "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any contribution imposed by government […] whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name. The legal definition and the economic definition of taxes differ in that economists do not consider many transfers to governments to be taxes. For example, some transfers to the public sector are comparable to prices. Examples include tuition at public universities and fees for utilities provided by local governments. Governments also obtain resources by creating money (e.g., printing bills and minting coins), through voluntary gifts (e.g., contributions to public universities and museums),by imposing penalties (e.g., traffic fines), by borrowing, and by confiscating wealth. From the view of economists, a tax is a non- penal, yet compulsory transfer of resources from the private to the public sector levied on a basis of predetermined criteria and without reference to specific benefit received. In modern taxation systems, taxes are levied in money, but in-kind and corvée taxation are characteristic of traditional or pre-capitalist states and their functional equivalents. The method of taxation and the government expenditure of taxes raised is often highly debated in politics and economics. Tax collection is performed by a government agency such as Canada Revenue Agency, the Internal Revenue Service (IRS) in the United States, or Her Majestys Revenue and Customs (HMRC) in the UK. When taxes are not fully paid, civil penalties (such as fines or forfeiture) or criminal penalties (such as incarceration)[2] may be imposed on the non-paying entity or individual. Taxation has four main purposes or effects: Revenue, Redistribution, Repricing, and Representation.[citation needed] The main purpose is revenue: taxes raise money to spend on armies, roads, schools and hospitals, and on more indirect government functions like market regulation or legal systems. A second is redistribution. Normally, this means transferring wealth from the richer sections of society to poorer sections. A third purpose of taxation is repricing. Taxes are levied to address externalities: tobacco is taxed, for example, to discourage smoking, and a carbon tax discourages use of carbon-based fuels.ALL CONTENTS COPYRIGHT © 2004-2010 H&H ASSOCIATES 49